City Editor for The Age

A freeze on Commonwealth grants to local councils has been described as a ''creeping cancer'' by a rural mayor who said local government was already on a knife's edge.

Other councils have warned of reduced services and a 5 per cent hit on rates.

West Wimmera Shire Council mayor and National Party member Ron Hawkins said rural councils were already under financial pressure.

''Any further cuts are only going to accentuate that … Something has got to give. We are not going to borrow for ongoing operations,'' he said.

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He said freezing the amount councils received in Commonwealth grants was a ''creeping cancer'' on budgets and the 3 per cent would compound to a 10 or 11 per cent hit.

Monash mayor and Labor Party member Geoff Lake warned that playground upgrades and school crossing supervisors could be hit as part of the Abbott government budget cuts.

Commonwealth grants make up 10 to 30 per cent of council budgets. The government has announced these grants will be frozen for three years.

''The government will achieve savings of $952 million over four years by pausing indexation of the local government assistance program for three years commencing 1 July, 2014,'' the budget papers said.

The Municipal Association of Victoria said the changes would mean a ''$134 million three-year black hole in Victorian council budgets''.

Cr Lake said the attack on local government funding would affect rates, or the 200 services councils provide. He said staff and infrastructure costs increased at a greater rate than inflation.

MAV president and Golden Plains Shire councillor Bill McArthur said the grants made up to 27 per cent of rural councils' funding ''so rural communities will suffer a massive impact''.

''Such a significant cut in federal funding leaves councils with two choices: cut services or increase rates,'' he said in a written statement.

Councils face a perfect storm of budget pressures with the Victorian Labor Party promising to cap rate rises at the consumer price index if it wins the November state election.